Boosting your investment income requires that you invest consistently, make regular savings and be disciplined enough to walk this path for as long it takes. But even as you do this, there are several ways that you can increase the income that your investments generate over time. Here are interesting things you can do to earn more from your investments:
1.Keep Investment Taxes Low
The amount of tax that you pay on your investment income can affect your portfolio performance significantly. Though it may not be possible to avoid them completely, there are several ways that you can reduce such taxes where possible. One way to do this is to keep off heavy trading. Engaging in trading activities earns you capital gains that are taxable.
These kinds of taxes, coupled with trading fees can lead to a portfolio that does not necessarily perform better in terms of materiality, than the buy-and-hold approach. Also, opt for exchange-traded funds that are indexed. These are tied to an embedded index and trade stocks only when there is a change in the index. This means they are less involved in trading compared to mutual funds, an aspect that reduces capital gains and therefore minimizes taxes.
2.Reduce Investment Costs
If you are investing in the stock market, you can be tempted to overlook expenses you incur, especially when you are making money in the bull market. If managed properly, the expenses you ignore can increase your investment significantly over time. If you were to reduce such expenses by a mere 1%, it could translate to higher performance of the investment portfolio you have with time. For instance, imagine you have an investment portfolio of $120,000.
If your average income on this investment is 12% per annum and your annual investment fee is 3%, your net return rate is 9%. At this rate, your investment portfolio will grow to $284,084 over a period of 10 years. If you were to reduce your investment fee by 1%, you would increase your rate of return to 2%. This downward change in investment cost would cause your investment portfolio to reach a high of $311,249 over the same period of time. This means that that 1% change in investment expenses will have earned you $27,165.
3.Invest with a Long Term Perspective
The ‘get rich quick’ attitude creates an illusion among many investors and is difficult to resist when the market is bullish. Unlike the numerous promises of fast returns that are common these days, investing successfully calls for patience and time. The best way to do this is to view your investment efforts from a long term perspective. As such, avoid measuring the time you need to build your portfolio in terms of months or years and instead see yourself continuing on that journey for decades. With the support of GrowthFinancial.com.au, you can make steady investments that earn you consistent income. For instance, if you put $10,000 in a fund that generates an 8% return for three decades, you will have a portfolio that is valued at close to $1.25 million.
4.Embrace Portfolio Diversification
Like the costs that are incurred during investing, the idea of diversifying investments can be overlooked when the market is bullish and you are making money. But from previous experience, bull markets do not last and markets drop faster than they rise. As such, anyone who is keen on growing their portfolio must prepare early. This is what portfolio diversification enables you to do – it’s about being ready for the changing market circumstances.
If you want to increase income from your investments, ensure that you maintain the necessary portfolio percentages in cash and fixed income investments, regardless of how well your stock allocation is performing. By doing so, you will be able to significantly lower your stock allocation losses when then markets take a downward turn. But loss minimization shouldn’t just happen during the bull market. Instead, focus on doing this on a continuous basis – even when the market is bearish.
Keep growing your investment portfolio whether the market is bullish or bearish. Doing causes dramatic growth of your investment income by combining regular contribution and investment gains. Ignore the market forces – don’t allow them to affect your contributions. When the market is bullish, good returns can convince you to cease regular contributions with ease. At the same time, a bearish market can cause you to view investing as a way of throwing away good money.
These two perspectives tend to be counter-productive. As a matter of fact, increasing your investment portfolio din both market is a win for you. Contributing to your portfolio when the market is bullish does not only grow it faster, it also gives you additional capital to put in other investments. In the same way, investing when the market is bearish enables you to minimize losses particularly when the value of your portfolio is dropping as a result of low returns. Most importantly, the new funds that you add to your portfolio provide capital to purchase stocks at good discounts when the market deeps.
6.Go for Dividend Stocks
Anyone who wants to increase their investment income should pay attention to dividend stocks. This does not mean you abandon stock, it just means that you find investments that will pay a higher return rate through dividend. The advantages of dividend stocks are threefold – higher, above average income, capital appreciation and safeguards against price declines. However, ensure that the company offering dividends has a strong financial state and if not, avoid investing there. If that’s the case, consider putting your investments in a dividend index fund.
The Last Word
Increasing your investment income is possible, but it calls for discipline and focus. You need to stay committed to the course – contributing regularly to your savings plan, focusing on your investment goal and adopting a long term view. By following the points discussed above, you will be able to do this consistently and reap the benefits of it.